DOCSLIB.ORG

Legal Protection of Minority Shareholders in Merger Limited Liability Company in Indonesia

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Legal Protection of Minority Shareholders in Merger Limited Liability Company in Indonesia Journal of Law, Policy and Globalization www.iiste.org ISSN 2224-3240 (Paper) ISSN 2224-3259 (Online) Vol.59, 2017 Legal Protection of Minority Shareholders in Merger Limited Liability Company in Indonesia Satria A. Putra 1 Sudarsono 2 Abd. Rachmad Budiono 3 Bambang Winarno 4 1. Doctoral Candidate of Economic Law at The Faculty of Law, Brawijaya University, Malang 2. Professor of Administrative Law at The Faculty of Law, Brawijaya University, Malang 3. Lecturer of Labor Law at The Faculty of Law, Brawijaya University, Malang 4. Lecturer of Economic Law at The Faculty of Law, Brawijaya University, Malang Abstract Companies in various countries are warm take action to strengthen the company financially. One way in which the company and has been a trend of late both domestically and abroad is a merger (amalgamation). Merger activity can affect unprotected minority shareholders should adjust the Limited Liability Company Law and government regulation (PP) provides legal protection for minority shareholders in the merger. The results of this study indicate that the implementation of the merger under the purchase method often harm the rights of minority shareholders. Legal merger, in this case the government regulation (PP) No.27 of 1998 on Merger, Consolidation and Acquisition Company Limited has determined that Article 4 (4) stipulated that the exercise will not stop the implementation of the merger. The law became less protection, while the law is the main entrance creates legal protection. Likewise matter of legal protection for minority shareholders in the merger.The principle of majority rule as one of the pillars of the Limited Liability Company Law, which, if the principle of majority rule is applied can fundamentally potential occurrence of abuse of power that led to the minority shareholders are not powerless in the face of the authority of the majority shareholder. The legal protection of minority shareholders in this case is done by introducing a special vote principle, namely the principle of the silent majority and super majority. Keywords : Legal Protection of Minority Shareholders, Merger. 1. Introduction Today almost every country is experiencing a decline in economic growth. The companies in various countries are warm take measures to strengthen the foundation of the company. One way in which the companies and has become the trend of late both domestically and abroad is a merger (amalgamation). The final goal of the merger is to form part of the business and corporate strategy of the acquirer or the surviving company. So both acquisitions and mergers are ideally be said the goal is to create value for the shareholders of the acquirer or the surviving company, and increase the market value (market value) of the merged company.1 The views of shareholders for this merger is to provide added value for shareholders, or minimum stay. Merger is a step in business strategy, so we need a calculation and based on the regulations that apply in Indonesia. Merger is basically an agreement, but the laws governing the procedures for the merger, so we need a separate strategy to reach the desired destination by the shareholders of the company, among others, to gain an advantage. The rule of law is intended to protect parties affected by the negative impact of the merger. 2 Legal actions merger must be approved by the General Meeting of Shareholders (GMS) on each side Limited Liability Company (PT) involved in the merger. The GMS applied the principle of one share, one vote, so that the majority shareholder has considerable opportunities to get votes compared to the minority shareholders. This resulted minority shareholders can not accommodate his will in the General Meeting of Shareholders. Linked with the principle of fairness (fairness), therefore it must be balanced with the rights of minority shareholders (minority rights), but it also should not be detrimental to the majority shareholders who have greater capital in the company. The majority shareholder has a fiduciary duty to the minority shareholders, because they have the power to control the company through the vote in the GMS. 3 Minority shareholders have a unique position in an engagement to establish a limited liability company, and the law is fair when the state intervened to provide protection to its citizens. State is the maker of legislation and have the right to apply sanctions, both criminal sanctions and administrative sanctions. Therefore, it should be allowed, the minority shareholders until certain limits should be protected by 1 Joseph M Morris, Merger and Acquisitions Business Strategies for Accountants , Canada: John Wiley & Sons. Inc, 2000, hlm.5. 2 Nindyo Pramono, Sertifikasi Saham PT Go Public Dan Hukum Pasar Modal Di Indonesia , Bandung: PT Citra Aditya Bakti, 2001, hlm. 90 3 Munir Fuady, Doktrin-doktrin Modern Dalam Corporate Law & Eksistensinya Dalam Hukum Indonesia , cetakan pertama, Bandung: PT Citra Aditya Bakti, 2002, hlm. 65. 172 Journal of Law, Policy and Globalization www.iiste.org ISSN 2224-3240 (Paper) ISSN 2224-3259 (Online) Vol.59, 2017 law. 1 The legal protection for minority shareholders in the merger is an important thing in a limited liability company, because the more people who buy shares in PT in an amount not too much resulting in a PT shareholder will be many. This resulted in legal protection for shareholders including minority shareholders become more important in the new world that is both global economy. 2 The majority shareholder must always act in good faith. There should be rules what is meant by the minority shareholders. 3 Therefore, in order to fulfill the elements of justice, we need a balance so that the minority shareholders will still be able to enjoy their rights as the majority, including regulating the company. On the other hand, the shareholders minoritaspun Noteworthy interests and can not simply be ignored rights. To safeguard the interests of both sides, in the science of Limited Liability Company Law known as the principle of "mayority Rule minority Protection", which is the rule (the ruler) in the company remain the majority, but the rule of the majority that must be undertaken by always protecting (to protect) the parties minority. It if does not get the attention of the government in fear will disrupt the climate of mergers and minority shareholders. The principle of the protection of minorities have a good cause for the requested is ekuilibirium which is summed up in the principle of majority rule and minority rights. Only, when other factors, such as procedural problems, hardware and software and also the human factor is not ready, will in fact tirany minority. 4 Legal protection is still lacking to accommodate the will of the minority shareholders in the merger, due to regulations in the Limited Liability Company Law is not clear on what the definition of a reasonable price, the extent to which the majority shareholders may approve fundamental changes in companies before merger carried out, and how far the holder shares do not agree on merger may request the purchase of shares at a reasonable price, 5 is there any other rights owned by minority shareholders set forth in the regulations in Indonesia. In connection with these problems, then this dissertation research identifies legal issues as follows: Why the Limited Liability Company Law and Government Regulation No.27 of 1998 on Merger, Consolidation and Acquisition Company Limited did not set clear laws regarding the protection of minority shareholders in the event of a merger? 2. Research Method This research is a normative study, which is the study of the principles of law, the legal norms of the rule of law and the legal system. 6 This research uses several approaches, such as: Approach legislation and conceptual approaches. 7 3. Result and Discussion The Framework Theory Theory of Legislation. Gesetzgebung Wissenschaft is a theory of law which is a concept that translates peundang law in general, which was originally developed in Western Europe, especially in countries that speak German. Another term often used is Wetgeving wetenschap or science of legislation. Understanding of law in Indonesia is divided into two senses. First, according to A. Hamid S. Attamimi, argues legislation (wettelijke regels) literally means the regulations pertaining to the laws, regulations either in the form of their own laws and regulations lower the attribution or assignment of legislation. 8 And second, Maria Farida Indrati, argues sense legislation that includes laws is the process of formation of state regulations and legislation is the result of the formation of state regulations, both at the central level and at the regional level. 9 According to Article 1 paragraph 2 of Law No. 12 Year 2011 on the Establishment of legislation, which is the legislation is "written rules contain legal norms binding in general and formed or defined by state agencies or competent authorities through the procedure set out in the legislation ". The formation of a theory of the 1 Munir Fuady, Perseroan Terbatas: Paradigma Baru, Bandung: PT Citra Aditya Bakti, 2003, hlm. 171. 2 Margareth Chew , Minority Shareholders, Rights and Remedies , Singapore: Butterworths Asia, 2000, halaman pendahuluan dari A.F.Mason yang menyatakan bahwa protection of the rights of minority shareholders assumes greater importance in the new world of the global economy. 3 Kartini Muljadi, Tinjauan Aspek Hukum Merger Dan Akuisisi Perbankan Indonesia , makalah disampaikan pada Seminar Tinjauan Aspek Hukum Dalam Pelaksanaan Merger dan Akuisisi, Jakarta: 20 Juni 1996, hlm. 22. 4 Munir Fuady, Hukum Bisnis Dalam Teori dan Praktek, Bandung: PT Citra Aditya Bakti, 1996, hlm. 16. 5 James D.Cox., Thomas Lee Hazen, F.Hodge O’neal, Corporation , New York: Aspen Law & Business, 1997, hlm. 585. 6 Sudikno Mertokusumo, Penemuan Hukum, Yogyakarta : Liberty, 2009, hlm 29 7 Peter Mahmud Marzuki, Penelitian Hukum, Jakarta: Kencana Prenada Media Group, 2008 hlm.
Load more

Recommended publications
  • Uva-F-1274 Methods of Valuation for Mergers And
    Graduate School of Business Administration UVA-F-1274 University of Virginia METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS This note addresses the methods used to value companies in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted cash flow (DCF) approach and reviews other methods of valuation, such as book value, liquidation value, replacement cost, market value, trading multiples of peer firms, and comparable transaction multiples. Discounted Cash Flow Method Overview The discounted cash flow approach in an M&A setting attempts to determine the value of the company (or ‘enterprise’) by computing the present value of cash flows over the life of the company.1 Since a corporation is assumed to have infinite life, the analysis is broken into two parts: a forecast period and a terminal value. In the forecast period, explicit forecasts of free cash flow must be developed that incorporate the economic benefits and costs of the transaction. Ideally, the forecast period should equate with the interval in which the firm enjoys a competitive advantage (i.e., the circumstances where expected returns exceed required returns.) For most circumstances a forecast period of five or ten years is used. The value of the company derived from free cash flows arising after the forecast period is captured by a terminal value. Terminal value is estimated in the last year of the forecast period and capitalizes the present value of all future cash flows beyond the forecast period. The terminal region cash flows are projected under a steady state assumption that the firm enjoys no opportunities for abnormal growth or that expected returns equal required returns in this interval.
    [Show full text]
  • Do Stock Mergers Create Value for Acquirers?
    University of Pennsylvania ScholarlyCommons Finance Papers Wharton Faculty Research 2009 Do Stock Mergers Create Value for Acquirers? Pavel Savor University of Pennsylvania Qi Lu Follow this and additional works at: https://repository.upenn.edu/fnce_papers Part of the Finance Commons, and the Finance and Financial Management Commons Recommended Citation Savor, P., & Lu, Q. (2009). Do Stock Mergers Create Value for Acquirers?. The Journal of Finance, 64 (3), 1061-1097. http://dx.doi.org/10.1111/j.1540-6261.2009.01459.x This paper is posted at ScholarlyCommons. https://repository.upenn.edu/fnce_papers/304 For more information, please contact [email protected]. Do Stock Mergers Create Value for Acquirers? Abstract This paper finds support for the hypothesis that overvalued firms create value for long-term shareholders by using their equity as currency. Any approach centered on abnormal returns is complicated by the fact that the most overvalued firms have the greatest incentive to engage in stock acquisitions. We solve this endogeneity problem by creating a sample of mergers that fail for exogenous reasons. We find that unsuccessful stock bidders significantly underperform successful ones. Failure to consummate is costlier for richly priced firms, and the unrealized acquirer-target combination would have earned higher returns. None of these results hold for cash bids. Disciplines Finance | Finance and Financial Management This journal article is available at ScholarlyCommons: https://repository.upenn.edu/fnce_papers/304 Do Stock Mergers Create Value for Acquirers? PAVEL G. SAVOR and QI LU* ABSTRACT This paper …nds support for the hypothesis that overvalued …rms create value for long-term share- holders by using their equity as currency.
    [Show full text]
  • Finding Goodwill in Mergers
    treasury practice M&A: ACCOUNTING FINDING GOODWILL IN MERGERS TERRY HARDING OF KPMG EXPLAINS WHAT STEPS ACCOUNTING STANDARD SETTERS WORLDWIDE ARE TAKING TO TIGHTEN REGULATIONS SURROUNDING M&A ACTIVITY. he acquisitive business world has been grappling with the Goodwill itself is not amortised but is subject to regular and rigorous related issues of merger accounting and goodwill since impairment tests. consolidated accounts first appeared. For some, the debate is The proposals are helpful in that they remove the arbitrariness Tconceptual: if I pay more for a firm than its identifiable assets from the accounting for mergers and goodwill. Generally, the larger are worth, what have I paid for? Market position, a workforce or company will be the acquirer and goodwill will be recognised for the brands, perhaps? But are these assets in an accounting sense or value of the smaller company. Some would argue there are valid simply a ‘debit’ that should be lost in reserves? Does the value of mergers of equals and choosing an acquirer in such cases is itself goodwill decline over time, and should that decline be reflected in arbitrary. The standard setters’ response is that ‘fresh-start’ earnings? When two similar-sized firms merge, should the value of accounting would then be more appropriate. Goodwill should be goodwill of one or both merging companies be brought onto the recognised for both companies, but for now at least, that is not part balance sheet? Or is a merger truly different from an acquisition? of the proposals. The new rules will remove the opportunity – and For shareholders, analysts and financiers, the issues are no less therefore the cost – of structuring a deal in order to achieve an significant.
    [Show full text]
  • M&A Target Portfolio Selection: a Real Options Approach
    M&A Target Portfolio Selection: A Real Options Approach Jani Kinnunen1 and Irina Georgescu2 1 Institute for Advanced Management Systems Research, Åbo Akademi University, Jouhakaisenkatu 3-5 B 6th floor, 20520 Turku, Finland E-mail: [email protected] 2Academy of Economic Studies, Department of Economic Cybernetics, Piata Romana No 6 R 70167, Oficiul Postal 22, Bucharest, Romania E-mail: [email protected] Abstract. In this paper we present a two-component portfolio selection problem under two types of uncertainties, i.e., probabilistic risk and possibilistic risk. We study the portfolio selection problem in mergers and acquisitions, M&As, and show the usability of the presented mixed model in portfolio selection of corporate acquisition targets. We view the total M&A value consisting of a stand-alone of a target value plus a synergistic strategic (real options) value. We illustrate, through a numerical example, how the portfolio model can be applied to M&As from an acquirer’s perspective, in the case, where some targets are valued probabilistically using Datar- Mathews real options approach (Datar and Mathews, 2004) to value the strategic part and other targets possibilistically using the fuzzy real options approach to value the strategic part as presented by Kinnunen (2010) and Collan and Kinnunen (2011). The portfolio problem corresponds to a situation in which some return rates on M&A investments are described by random variables, while others by fuzzy numbers. We discuss the setup of an acquirer facing a situation in which some acquisition targets are reasonable to be valued probabilistically and others possibilistically.
    [Show full text]
  • Mergers and Acquisitions in the U.S. Insurance Sector by Edward Best, Lawrence Hamilton and Magnus Karlberg1
    Article December 2015 Mergers and Acquisitions in the U.S. Insurance Sector By Edward Best, Lawrence Hamilton and Magnus Karlberg1 Introduction • a highly specialized, capital-intensive, and seasoned industry with high barriers to entry; and This practice note discusses recent trends in private merger and acquisition (M&A) • an industry that has developed over many transactions in the U.S. insurance sector and centuries with its own terminology and explores some central aspects of successfully particularities, which can be difficult for structuring, negotiating, and documenting an outsiders to penetrate. insurance M&A transaction. It also addresses While this article will discuss various ways in considerations that are specific to, or assume which insurance M&A transactions can be more importance in, M&A transactions in the structured, it will focus on the due diligence and insurance industry. Such considerations affect negotiation issues in a “classic” insurance M&A nearly every stage of the M&A process, transaction—namely, the acquisition by an including: acquirer from a seller of all of the common stock • structuring the deal; of a stock insurance company. • due diligence; The Insurance Business • negotiating the terms of the purchase and sale agreement; and Generally speaking, insurance is a mechanism for contractually shifting the burden of a number • addressing post-closing matters. of pure risks by pooling those risks. A pure risk Although the structure and terms of insurance involves the chance of a loss or no loss (but no M&A transactions vary, the following factors chance of a gain). The purchaser of an insurance affect all insurance M&A deals: contract must be subject to a pure risk of • the insurance business model, which is based incurring an economic loss (i.e., must have an on the management of potentially large and “insurable interest”).
    [Show full text]
  • The Role of Equity Underwriting Relationships in Mergers and Acquisitions*
    The Role of Equity Underwriting Relationships in Mergers and Acquisitions* Hsuan-Chi Chen Anderson School of Management, University of New Mexico Albuquerque, NM 87131, USA E-mail: [email protected] Keng-Yu Ho Department of Finance, National Taiwan University Taipei City 106, Taiwan E-mail: [email protected] Pei-Shih Weng Department of Finance, National Sun Yat-sen University Kaohsiung City 804, Taiwan E-mail: [email protected] Chia-Wei Yeh Department of Banking and Finance, National Chi Nan University Nantou County 545, Taiwan E-mail: [email protected] This draft: September 17, 2020 * This paper has benefited from comments and suggestions from Sevinc Cukurova, Ying-Chou Lin, and Hilmi Songur. We thank seminar and conference participants at National Central University and the meetings of Desert Finance Festival, Eastern Finance Association, and Financial Management Association for their helpful comments and suggestions. Hsuan-Chi Chen gratefully acknowledges support from Anderson School of Management at the University of New Mexico. Address for correspondence: Hsuan-Chi Chen, Anderson School of Management, University of New Mexico, Albuquerque, NM 87131, USA. E-mail: [email protected] 1 The Role of Equity Underwriting Relationships in Mergers and Acquisitions Abstract We examine the role of equity underwriting relationships in subsequent mergers and acquisitions (M&As). Firms, either the bidders or targets, tend to choose their M&A advisors with prior equity underwriting relationships. Consistent with the cost-saving hypothesis, retaining their prior underwriters as future advisors is related to cost reduction in the M&A advisory. Firms also experience shorter deal duration if they hire relationship advisors.
    [Show full text]
  • Dmitri V. Kovalenko
    Dmitri V. Kovalenko Partner, Moscow Mergers and Acquisitions; Private Equity; Capital Markets Dmitri Kovalenko is co-head of the Moscow office and represents international and Russian clients on a broad range of mergers and acquisitions, private equity and joint venture transac- tions in Russia and other countries covering various industries and sectors. Mr. Kovalenko has practiced law in Skadden’s Moscow, Chicago and Paris offices since 1994. He is ranked in the top tier for Russia M&A and Russia capital markets work by Chambers Global and Chambers Europe, as well as for private equity in Russia by Chambers Europe. Mr. Kovalenko also was named as the 2021 Mergers and Acquisitions Lawyer of the Year and the 2020 Capital Markets Lawyer of the Year by The Best Lawyers in Russia, and was listed in the publication’s Global Business Edition. Additionally, he is listed as a leading individual in IFLR1000 and Who’s Who Legal, as well as repeatedly in The Legal 500 EMEA as a member of its Commercial, Corporate and M&A: Moscow Hall of Fame. T: 7.495.797.4600 F: 7.495.797.4601 His M&A and private equity experience has included advising: [email protected] - Mercury Retail Group in its US$1.2 billion sale of JSC Dixy Group to PJSC Magnit; - Horvik Limited in relation to its preconditional mandatory offer to acquire Trans-Siberian Gold Education plc, an AIM-quoted gold producer; LL.M. (with honors), Northwestern - Kismet Acquisition One, a special purpose acquisition company, in its US$1.9 billion initial University School of Law, Chicago, merger with Nexters Global Limited, the first-ever de-SPAC transaction involving a Russian USA, 1996 company.
    [Show full text]
  • Can Underwriters Profit from IPO Underpricing?
    Footloose with Green Shoes: Can Underwriters Profit from IPO Underpricing? Patrick M. Corrigan† Why are green shoe options used in initial public offerings (IPOs)? And why do underwriters usually short sell an issuer’s stock in connection with its IPO? Are underwriters permitted to profit from these trading po- sitions? Scholars have long argued that underwriters use green shoe options together with short sales to facilitate price stabilizing activities, and that U.S. securities laws prohibit underwriters from using green shoe options to profit from IPO underpricing. This Article finds the conventional wisdom lacking. I find that underwriters may permissibly profit from IPO under- pricing by pairing purchases under a green shoe option with offshore short sales. I also find that underwriters may permissibly profit from IPO over- pricing by short selling the issuer’s stock in the initial distribution. The possession of a green shoe option and the ability to short sell IPOs effectively makes underwriters long a straddle at the IPO price. This posi- tion creates troubling incentivizes for underwriters to underprice or over- price IPOs, but not to price them accurately. This new principal trading theory for green shoe options and under- writer short sales provides novel explanations for systematic IPO mispric- ing, the explosive initial return variability during the internet bubble, and the observation of “laddering” in severely underpriced IPOs. This Article concludes by charting a new path for the regulatory scheme that applies to principal trading by underwriters in connection with securities offerings. Consistent with the purpose of preserving the integrity of securities markets, regulators should address the incentives of under- writers directly by prohibiting underwriters of an offering from enriching themselves through trading in the issuer’s securities.
    [Show full text]
  • The Measurement of Post-Acquisition Performance in Rsa Using Economic Value Added (Eva)
    THE MEASUREMENT OF POST-ACQUISITION PERFORMANCE IN RSA USING ECONOMIC VALUE ADDED (EVA) A research paper submitted by Amos Tlali Makhele Student number: 689500 Proposed Supervisor: Dr. Thabang Mokoaleli-Mokoteli Wits Business School May 2013 DECLARATION I, Amos Makhele, hereby declare that the work presented herein is genuine work done originally by me and has not been published or submitted elsewhere for the requirement of a Master in Management of Finance and Investment degree at the Wits business school (WBS). Any literature, data, or works done by others and cited within this report has been given due acknowledgement and listed in the reference section. I further declare that I was given authorization by a panel from the research committee of the WBS to carry out this research. Signed: May 2013 1 ABSTRACT This study re-examines post-acquisition performance of acquiring firms in South Africa using Economic Value Add (EVA). Investigation of the 336 acquisitions occurring during 2000 to 2011 reveals that acquiring firms experience significantly deteriorating EVA after the completion of acquisitions. Further, this study evaluates the performance of other traditional accounting measures including Earning per share (EPS), Return on capital (ROC), Return of Assets (ROA) and Return on Equity (ROE) post acquisition. The results suggest that acquiring firms tend to experience slightly improved performance after completion of the acquisitions when using traditional accounting measures. But the improved operating performance is wiped out by capital costs of the large premiums paid to the target firm, creating no real economic gains to the acquiring firm‘s shareholders 2 ACKNOWLEDGEMENTS I take this opportunity to express my profound gratitude and deep regards to my supervisor Dr.
    [Show full text]
  • A Fresh Look at Economic Value Added: Empirical Study of the Fortune Five-Hundred Companies Adnan M
    The Journal of Applied Business Research Volume 18, Number 2 A Fresh Look At Economic Value Added: Empirical Study Of The Fortune Five-Hundred Companies Adnan M. Abdeen, (Email: [email protected]), California State University, Los Angeles G. Timothy Haight, (Email: [email protected]), California State University, Los Angeles Abstract Rapid and complex changes in the economic and business environment are posing serious challenges to today’s business executives. Meeting these challenges requires effective measures for control and performance evaluation. This article focuses on the uses, benefits and limitations of economic value added (EVA) as a value creation measure. Calculation of this trendy measure is complicated because of the many adjustments needed to convert the generally accepted accounting principles (GAAP) based income to economic income. The article compares the performance of EVA user companies with non-user Fortune 500 companies for the years 1997 and 1998. It shows that users performance means profits as percentage of revenues, assets, and stockholders’ equity were higher than the means of non-users. However, the means for 1998 earnings per share (EPS), EPS change from 1997 and EPS growth for the years 1988-1998 were lower for the EVA user companies. EVA will become less popular in its use as an instrument of control and performance evaluation. Therefore, the conclusion of this research is not in support of EVA use as a measure of value creation to stockholders. Introduction he economic and business environments have changed dramatically during the last few years. Business executives are faced with an increasingly competitive and complex environment. The need for creative T leadership to handle the new developments in global business, technology, mergers, E-commerce and in- novations is accelerating.
    [Show full text]
  • Accounting Quality, Corporate Acquisition, and Financing Decisions*
    Accounting Quality, Corporate Acquisition, and Financing Decisions* Sangwan Kim Kenan-Flagler Business School University of North Carolina at Chapel Hill 300 Kenan Center Drive, Campus Box 3490, McColl Building Chapel Hill, NC 27599 [email protected] January 2013 Abstract This paper examines the extent to which the quality of financial accounting information disciplines manager interests to align with stockholder interests in corporate acquisition and financing decisions. I find that, after controlling for financing constraints, recent performance, and payout policy, the tendency of firm managers to time the market is significantly constrained for firms with high-quality financial accounting information. Further, I find that the disciplining impact of accounting information is mostly driven by firms that bid for acquisitions financed with stock issuance. I also provide corroborating evidence by examining a similar disciplining role of financial accounting information in the seasoned public offering markets. I find no such effect for potential acquisitions financed through cash. The evidence suggests that high-quality accounting information allows stockholders to discipline firm managers that are motivated to take advantage of the misevaluation. Further, the results suggest the effectiveness of accounting information as a control mechanism is pronounced for firms that pursue more value-decreasing investment projects. JEL Classification: G02, G32, G34, M41 Keywords: Accounting quality, corporate governance, market timing, mergers and
    [Show full text]
  • Stock-For-Stock Mergers During the Coronavirus (Covid-19) Crisis – a Potential Strategic Solution
    October 5, 2020 STOCK-FOR-STOCK MERGERS DURING THE CORONAVIRUS (COVID-19) CRISIS – A POTENTIAL STRATEGIC SOLUTION To Our Clients and Friends: The widespread economic uncertainty caused by COVID-19 poses distinct challenges for buyers and sellers seeking to identify M&A opportunities, as companies evaluate the impact of the pandemic on their businesses to date, and seek to predict its future impact. Continued volatility in the financial markets and the lack of visibility into how the pandemic will affect the global economy in the near or longer term, as well as the pace and scope of economic recovery, introduce elements of conjecture into the valuation process. Securing financing for a transaction is also likely to be difficult, as traditional credit providers may be reluctant to lend, particularly to borrowers in sectors that have been more severely impacted by the crisis. Buyers and sellers struggling with these challenges may find that stock-for-stock mergers offer an attractive option. Transactions based on stock consideration can enable the parties to sidestep some of the difficulties involved in agreeing on a cash price for a target, by instead focusing on the target’s and the buyer’s relative valuations. In addition, using stock as consideration allows buyers to conserve cash and increase closing certainty by eliminating the need to obtain financing to complete a transaction. The extent and duration of COVID-19’s impact on M&A activity, and whether companies will trend toward stock-for-stock mergers in lieu of cash acquisitions,
    [Show full text]